1.

Under the CAPM, the correlation coefficient between the realized return of a well-diversified (no idiosyncratic risk) portfolio with a CAPM beta of 1.5 and the realized return of the market portfolio is:

Select one:

a. 1.5

b. It is impossible to tell.

c. 0.5

d. 0

e. 1

2.

The CAPM has been estimated for stocks A and B with the following parameters:

R_A = 0.03 + 0.7R_M + e_A

R_B = 0.01 + 0.9R_M + e_B

Given the standard deviation of R_M = 0.35, the standard deviation of e_A = 0.2, and the standard deviation of e_B = 0.1, what is the covariance between the returns of stocks A and B? Please round your answer to 4 decimal places (e.g. 0.xxxx).